Could we see rent controls via the back door?

Could we see rent controls via the back door? Richard Berridge reflects on Labour's bold plan to empower local authorities.

Richard Berridge, Founder of Blackbird Real Estate Advisors | BTR News
Richard Berridge, Founder of Blackbird Real Estate Advisors.

With the Labour Party’s ambition to promote devolved authorities and the rising concerns over housing affordability, the prospect of rent controls has become a significant topic of discussion.

By Richard Berridge, Founder, Blackbird RE Advisory

If Labour were to come to power, the landscape for rental properties in the UK, especially in the single-family rental (SFR) and Build to Rent sectors, could face substantial changes.

 The case for rent controls

Rent controls have long been a contentious issue, with proponents arguing they are necessary to protect tenants from exorbitant rent increases, particularly in high-demand urban areas. Sadiq Khan, the Mayor of London, has been one of the most vocal advocates for rent controls. He argues:

“Rising rents are driving too many people into poverty and making life increasingly difficult for ordinary Londoners. Rent controls are an essential tool to ensure that everyone can afford a safe, secure home.”

Sadiq Khan, Mayor of London

Sadiq’s call for rent controls has been echoed by other UK mayors and city leaders. Andy Burnham, the Mayor of Greater Manchester, has also expressed interest in implementing rent controls.

“The housing crisis is affecting every part of our city-region. We need the powers to implement rent controls to protect our residents from unfair rent hikes and to ensure that housing remains affordable for everyone.”

Andy Burnham, Mayor of Greater Manchester

The Labour Party’s manifesto hints at devolving more powers to local and regional authorities, which could include the ability to implement rent controls. This move aligns with Labour’s broader goal of addressing the housing crisis by empowering local governments to take direct action tailored to their communities’ specific needs.

Potential impact on the SFR and Build to Rent sectors

If rent controls were introduced, the impact on the SFR and Build to Rent sectors could be significant. Historically, rent controls have led to mixed outcomes. In Scotland, for example, the introduction of rent controls in major cities such as Edinburgh and Glasgow have had unintended consequences. According to property analyst John Blackwood:

“Rent controls in Scotland have disrupted the market, reducing the incentive for new investment and leading to a decrease in the overall quality and availability of rental properties.”

John Blackwood, Property Analyst

For institutional investors, the uncertainty and potential reduction in rental income could deter further investment. Fiona Howie, Chief Executive of the Town and Country Planning Association, cautions:

 “While the intention behind rent controls is commendable, it is crucial to ensure that such measures do not stifle investment in new housing developments. The focus should be on creating a balanced approach that protects tenants without discouraging developers.”

Fiona Howie, Chief Executive, Town and Country Planning Association

Although Marvin Rees is no longer the Mayor of Bristol, a recent commission in the city has called for rent controls. Despite Bristol’s shift back to a committee system, the push for rent regulation highlights the ongoing local support for such measures.

Richard Parker, the newly elected Labour Mayor of the West Midlands sees potential in rent controls but stresses the need for a balanced approach.

“Our focus should be on creating a fair rental market that protects tenants without stifling growth. Rent controls, if carefully designed, could be part of this solution.”

Richard Parker, Mayor of the West Midlands

Balancing protection and investment

Labour’s approach would need to strike a delicate balance between protecting tenants and ensuring continued investment in the rental sector. The Labour Party has acknowledged the need for a comprehensive strategy that addresses both supply and affordability. This includes building more homes and improving tenant rights.

Shadow Housing Minister Matthew Pennycook, under the leadership of Deputy Leader Angela Rayner, has emphasised the importance of a multifaceted approach:

“Rent controls alone are not a silver bullet. We need a holistic strategy that includes significant investment in new housing, stronger tenant protections, and incentives for landlords to maintain and improve their properties.”

Matthew Pennycook, Shadow Housing Minister

Dan Jarvis, the Mayor of the Sheffield City Region, also supports a balanced approach.

“We cannot simply cap rents without addressing the underlying issues of housing supply and affordability. Our policies must encourage the building of new homes and ensure that they are accessible to all income levels.”

Dan Jarvis, the Mayor of the Sheffield City Region

 Learning from international models

Looking at international examples, there are valuable lessons to be learned. In Berlin, strict rent controls were implemented, but they faced significant pushback from landlords and legal challenges. Eventually, the policy was partially rolled back. This highlights the complexities and potential pitfalls of implementing rent controls without adequate preparation and stakeholder engagement.

Conversely, in cities like Vienna, rent controls are part of a broader housing policy that includes substantial public investment in housing stock. This model has been relatively successful in maintaining affordability while ensuring quality and availability.

“Vienna’s model shows that rent controls can work effectively if they are part of a comprehensive housing policy that includes significant public investment and support.”

Michael Edwards, Urban Development Expert

Local authority views

Leaders from various cities have weighed in on the debate, underscoring the diverse perspectives across the UK. Steve Rotherham, the Mayor of the Liverpool City Region, has pointed out the need for localised solutions.

“What works in London may not be suitable for Liverpool. Devolved powers would allow us to tailor our approach to the specific needs and challenges of our region.”

Steve Rotherham, Mayor of the Liverpool City Region

While the Labour Party’s national executive has ruled out implementing rent controls, the debate remains highly relevant among local authorities and city leaders. The aim of making housing more affordable is laudable, but the approach must be carefully crafted to avoid unintended consequences that could harm the very people it seeks to protect. By learning from both domestic and international experiences, Labour can develop a nuanced policy that balances tenant protection with the need to encourage continued investment in the SFR and Build to Rent sectors.

As the debate continues, it is clear that rent controls are not the solution. Yet, there remains a very real danger of such policies being implemented by devolved powers, effectively introducing rent controls via the ‘back door.’ To mitigate this risk, the SFR/Build to Rent sector must proactively engage with local politicians and educate them about the potential negative impacts of rent controls – TF2 (Taskforce 2) as I have previously promoted, is essential in delivering this message.

Emphasising the importance of building more homes, enhancing tenant rights, and fostering a collaborative relationship between landlords, tenants and the government is crucial. Only through such a balanced and comprehensive approach can the UK effectively address its housing challenges and ensure that rental housing remains accessible, affordable and of high quality for all.